Starbucks Big China Trouble

Mall Starbucks
Mr.ちゅらさん / Wikimedia Commons

24/7 Insights

  • Starbucks Corp. (NASDAQ: SBUX) faces a price war in its second-largest market.

Starbucks Corp. (NASDAQ: SBUX) has had enough trouble with labor unions; a former CEO, Howard Schultz, criticizing the company; and a falling stock price. These attacks have been aggressive. According to Reuters, it faces a price war in its second-largest market, China.

The price competition and price cuts are due to local companies, which is something Starbucks cannot conquer completely. Reuters reports, “As Starbucks faces stiff competition for its brew in China from fast-growing, low-cost rivals who have chipped into its market share, the coffee chain is increasingly being dragged into a price war it says it wants to avoid.” Starbucks is giving out coupons to try to draw customers.

In its most recent quarterly report, Starbucks clearly outlines how critical China is and that sales in China are already in trouble. Of its stores worldwide, 61% are in the United States and China. In exact numbers, 16,600 locations are in the United States and 7,093 in China.

The bad news is in the locations section of the earnings report, which contains comparable store sales. “China comparable store sales declined 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions.” This is compared to a 4% drop in comparable store sales worldwide in the same period. There is no Starbucks recovery right now.

The figures are even worse when compared to Starbucks’s aspirations in China. Late last year, new CEO Laxman Narasimhan said he expects 9,000 locations in China by the end of 2025.

If Narasimhan is right, he will have many stores in China offering discounts to attract customers.

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